May 8, 2009
Executives
Scott Cunningham – Vice President Investor Relations Theodore Craver – Chairman, Chief Executive Officer James Scilacci – Chief Financial Officer Ron Litzinger – Chairman, President, CEO of Edison Mission Group Alan Fohrer – Chairman, CEO Southern California Edison
Analysts
Greg Gordon – Citi Hugh Wynne – Sanford Bernstein Jonathan Arnold – Merrill Lynch Leslie Rich – Columbia Management Lasan Johong – RBC Capital Markets Ryan Mooney – Dusquense Capital Clark Orsky – State Street Global Kevin Fallon – Blenheim Capital Management Ben Shuman – Pacific Crest Securities Michael Goldenberg – [Luminess] Management Raymond Lund – Goldman Sachs Paul Patterson – Glenrock Associates Jesse Lauden – Ben Lucas Ivana Erglevick – [firm not specified] Daniel Eggers – Credit Suisse Michael Lapides – Goldman Sachs
Operator
I would like to welcome everyone to the Q1 2009 earnings conference call. (Operator Instructions) Mr.
Cunningham, you may begin your conference.
Scott Cunningham
Good morning everyone. Our principal speakers today will be Ted Craver, our Chairman and CEO and Jim Scilacci, our Chief Financial Officer.
Also with us to participate in the Q&A session are other members of the management team. The presentation of the company's financial review together with the earnings of the press release and our first quarter 10-Q filings are available on our website at www.edisoninvestor.com.
During this call we will make forward-looking statements about the financial outlook for Edison International and its subsidiaries and about other future events. Actual results could differ materially from current expectations.
Important factors that could cause different results are set forth in our 2008 10-K and our other SEC filings. We encourage you to read these carefully.
The presentation also includes additional information including certain outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure. With that, I'll turn the call over to Ted Craver.
Theodore Craver
Good morning everyone. This morning we reported first quarter earnings of $0.76 per share and core earnings of $0.97 per share.
While our core earnings per share were 14% lower than last years first quarter, the results for this quarter are consistent with the full year core earnings outlook we provided in February. We reached two significant milestones thus far this year that I want to comment on.
First, the Southern California Edison General Rate Case and secondly, the global tax settlement we have now executed with the Internal Revenue Service. On March 12, the California Public Utilities Commission approved the 2009 General Rate Case effective back to January 1 of this year.
Even with the backdrop of the current difficult economic conditions, the Commission demonstrated support for our investment in California's electricity infrastructure. The second important milestone reached was the completion of our global tax settlement with the Internal Revenue Service.
This follows the Joint Committee on Taxation's review of the settlement and our determination of all the cross border leases. This is an important settlement, resolving over 100 issues going back to 1986 including a final resolution of the Edison Capital cross border leverage lease disputes with the IRS.
Jim's going to go into more detail but getting this issue behind us and on a cash positive basis is an important milestone. We also know it resolves the risk that has been an important concern for investors.
We are focused on three principal business priorities; financial discipline, superior execution and developing innovative approaches to our toughest challenges. Let me elaborate on these three focus areas starting with financial discipline.
We continue to maintain strong liquidity with over $3.5 billion of cash on hand and over $6.3 billion in total liquidity across the company. SCD is able to access the debt capital markets at rates well within our authorized levels while adding $500 million in new bank credit lines.
EMG is operating in a capital conservation mode we mentioned in earlier earnings calls which is providing important flexibility during the current downturn in the power markets. Our financial position remains strong.
We see this as a competitive advantage and we want to protect and extend it through continued financial discipline. Secondly, we continue to place great importance on superior execution for both our existing operations and our growth programs.
We provide an essential public service through both our regulated utility and our competitive generation company and only through superior execution will we be reliable, successful and deserving of the public trust. Looking forward, our ability to realize our growth potential rests principally on how we execute two initiatives.
First is our five year approximately $20 billion capital investment plan at Southern California Edison. This is the largest such program in our history and among the largest in the industry.
Second is our ability to develop our pipeline of potential wind and solar energy projects at Edison Mission Group while meeting the environmental responsibilities of EMG's coal fleet. We continue to work on our 5,000 megawatt pipeline of potential wind projects and have early development activities underway at 30 potential solar sites in six different states.
Accessing the non recourse bank market for renewable project financing remains a key challenge in moving our renewable development program forward and we are hopeful that the bank market will be accessible to us this year so we can continue building out our development pipeline. Let me turn to our third business priority, innovative approaches.
An area that has been an important focus for our investors and that needs innovative approaches is how our coal fleet meets its environmental responsibilities. EMG has now been engaged in an effort to identify less costly approaches to meeting the coal fleet environmental obligations within the framework of the 2006 compliance agreement with the State of Illinois.
EMG is seeing some encouraging, but still very preliminary results from the evaluation of alternative environmental compliance technologies, our SO2 control. They are currently running a field test at several of the units.
The technologies being tested include catalytic removal, non catalytic removal by injecting urea and SO2 removal technologies using Trona or sodium bicarbonate injection. Our engineers will need more time to validate the preliminary results but these are efforts to develop less costly alternatives.
By focusing on these three priorities, financial discipline, superior execution and innovative approaches, I believe we will achieve Edison International's growth potential which is among the very best in the industry and realize superior value for our owners. With that, let me turn the call over to Jim Scilacci.
James Scilacci
In my remarks I will be reviewing our first quarter financial performance, update you on EMG's operations, provide some more specifics on our global tax settlement with the IRS and conclude with comments on guidance. In our last quarterly call we told you that SCE's earnings would be up during 2009 while EMG's would be down.
The primary drivers for these changes would be SCE's General Rate Case decision and lower results at our merchant coal plants. Our first quarter earnings are consistent with this guidance.
If you turn to Page 2 in the deck, I'll summarize our quarterly GAAP and core earnings. As Ted has already said reported earnings per share were $0.76 for the first quarter of 2009 compared to $0.91 last year.
EIX core earnings per share were $0.79 in the first quarter of 2009 compared to $0.92 in the first quarter of 2008. Please note that we have implement FAS-160 this quarter which redefines net income to include earnings contributable to non controlling interest.
The numbers included here are favorable to Edison International only. Turning to Page 3, the 2009 first quarter core earnings decreased $0.13 per share and mainly due to a few key drivers; lower energy prices and lower generation along with higher emission costs at Midwest Generation of about $0.22 and Homer City of about $0.03 and lower EMT revenues primarily from lower congestion revenues of about $0.05.
Market energy prices were driven down by lower natural gas prices and lower demand. Included in Midwest Gen's first quarter results is a positive $0.03 per share from hedge contracts that did not qualify for hedge accounting.
Although EMG's results were down, SCE results partially offset this by about $0.18 primarily related to two items; higher rate base of about $0.07 and deferred spending of about $0.06 associated with the delay in receiving our 2009 GRC decision. The difference in non core items of $0.03 per share include a $0.04 charge from termination of two of our six cross border leases which I will talk more about in a few minutes.
Turning to Page 4, provides an overview of the operational performance of Midwest Gen's coal fleet. Total terawatt hours and load factors were lower than the first quarter of 2008.
The decline in natural gas prices combined with lower electrical demand in northern Illinois resulted in significantly lower energy prices compared to last year, Energy prices were also depressed by transmission congestion affecting power exports from the northern Illinois hub control area. The average 24 hour PGM market place for energy declined about $34.00 per megawatt hour during the first quarter of 2009 compared to $53.00 per megawatt during the same period in 2008.
A couple of other points regarding Midwest Gen, fuel and emission costs increased during the first quarter from high annual emission and control costs consistent with our previous guidance and lower forced outage rates at 7% for the first quarter of 2009 compares favorably to 11.8% rate in the same period last year. As you may recall, Midwest Gen has focused considerable effort and funds during 2008 to product [weather tube leaks].
They are now seeing tangible results from this effort. As you can see on Page 5 of the deck, Homer City experienced lower financial performance compared to last year.
As with Midwest Gen, the decline in natural gas prices together with lower electrical demand resulted in significantly lower market prices and lower generation, particularly in off peak periods. As provided in our disclosures, the average 24 PGM market price at Homer City declined to about $45.00 per megawatt hour during the first quarter of 2009 as compared to about $60.00 during the first quarter of 2008.
As shown on Page 5 Homer City's average realized energy price was higher than the 24 hour PGM market price due to higher hedge prices. Higher capacity revenues also helped offset the lower energy prices.
Low power prices also caused EME to shift to planned outage at Homer City into the first quarter of 2009. This resulted in an additional 20 days of plant outages as compared to the first quarter of 2008.
This shift reduced availability and generation and increased plant O&M which will largely reverse next quarter. Homer City's first quarter forced outage rate increased substantially to last year.
This increase however was not a result of equipment failure but was largely due to de-ratings which were required to prevent exceed opacity limits. The lower prices and dispatch of Homer City units resulted in increased unit ranking which then affected unit opacity.
Recent efforts to optimize unit ramp rates and conduction parameters have reduced the de-ratings required to avoid opacity overages. Turning to Pages 6 and 7, provide EME's hedge position for the coal fleet.
We did not enter into new energy hedges during the first quarter of 2009. We have said previously we continue to believe that coal prices will decline.
We have also been reluctant entering a fuller hedge sales of energy given the depressed prices of power. Although we would like to limit our gross margin at risk, we are also mindful of the liquidity requirements of locking in prices at these low levels.
I'd like to add a little color on the elements of our capital preservation mode at EME right now. At March 31, 2009 EME consolidated cash and short term investments of just under $200 billion compared to $1.8 billion at December 31, 2008.
The increase in cash is largely due to higher collateral deposits received from counter parties under our hedge program. EME and Midwest Gen have utilized about $1 billion on the credit lines with about $100 million available at March 31, 2009.
To make clear, the cash position shown on Page 8 is for EMG, Edison Emission Group. The difference between EME cash position of $2 billion and the EMG cash position of $2.4 billion is primarily cash at Edison Capital.
Edison Capital's cash increased during the first quarter from terminating the two cross border leases and receiving the collateral which no has been converted into cash. We added details in our first quarter's disclosures of EME's interest coverage ratio and recourse debt to recourse capital ratios as defined in EME's credit agreement.
As of March 31, EME's interest coverage ratio was 1.59 as compared to a minimum threshold of 1.20 and recourse debt to recourse capital ratio was .59 compared to a maximum threshold of .75. EME deferred certain turbine payments scheduled during the first quarter by an agreement with certain suppliers and is continuing discussions during the second on scheduled future deliveries and payments.
In the meantime, EME has continued to preserve capital by focusing on the growth strategy, primarily on completion of projects under construction and development of future sites for future renewable projects deploying the current turbine commitments. EME is actively participating in competitive PTA solicitations but awards from these solicitations are slow, presumably the current economic environment.
Turning to the global tax settlement, as Ted mentioned, on May 5, Edison International and the IRS finalized the global tax settlement. The settlement resolved all Federal tax issues related to Edison Capital's cross border leases as well as SE's issued from 1986 to 2002 tax years.
During our last quarterly call, we indicated the global tax settlement was being reviewed by the Joint Committee on Taxation. On April 1, we received word from the IRS the Joint Committee had completed its review without adjustments.
Pursuant to the settlement we then terminated the four remaining Edison Capital leases. As previously mentioned, two of the six leases were terminated during the first quarter of 2009.
As a result of these lease terminations, Edison Capital received collateral supporting the leases. These funds are the principal source of payment under our settlement with the IRS.
The financial that we're reporting of the global tax settlement will not occur until the second quarter of 2009. Our second quarter 10-Q will be released in early August.
Included in our first quarter disclosures are the following key points. EIX expects a positive consolidated cash flow impact of approximately $325 million to $400 million.
EIX will record a non core earnings charge of approximately $225 million to $300 million through the second quarter of 2009. To be clear, the $0.04 first quarter charge associated with terminating the two Edison Capital leases is included in this range.
Also, in the second quarter, Edison Capital will record a substantial earnings charge associated with entering into the global tax settlement and terminating the cross border leases. Lastly, the global tax settlement will have a favorable earnings impact on SGE.
One last comment about the global tax settlement, clearly it resolved a major uncertainty for our company and we are pleased that it is now behind us. Turning to guidance, our outlook for 2009 is shown on Page 9.
Although our core earnings guidance remains the same, the global tax settlement changes our GAAP non core numbers and they're provided in the chart. Additionally, assumptions are updated for forward prices as of March 31, 2009 and we have included the global tax settlement impact.
All other assumptions remain the same. With that I will turn over the call to the operator for questions.
Operator
(Operators Instructions) Your first call comes from Greg Gordon – Citi.
Greg Gordon – Citi
Can you take a step further in the discussion of the tax settlement and explain how much cash is going into SCE, how much cash is being paid out of Edison Capital and how that deals with the equity funding requirements of SCE. I know some of the investors have been concerned that with the good news/bad news situation with SCE with so much growth that you might have to issue equity to finance that.
Theodore Craver
It's a good question and what I'd like to say right now is we're trying to have the discussion overall at EIX level and it's obviously positive from an EIX level. As we provide additional information in the second quarter we will get into more specifics in terms of all the allocation of cash.
But bear in mind since we terminated the leases, the cash now resides at Edison Capital and we'll move it around the entities at a later date once we clarify and get all the specifics in place.
Greg Gordon – Citi
When will be able to quantify and talk about the different cost benefit parameters of these different technologies and once you get to a point where you understand them, what is the process of getting the relevant counterparties to buy into potentially changing the control technology that you want to deploy.
Theodore Craver
What I'd like to tell you right now is, we're going through an extensive testing period currently and that's going to take some time for us to work through both the SMCR's with urea injection and the Trona base testing, and we have to go through the process. We're doing it at various plants and we're going to come back with that result and analyze it.
And that's going to take some time. I think it's going to be later in the year.
I don't want to tell you exactly when because it does take quite a bit of testing and we will be providing it specifically later.
Ronald Litzinger
The alternate control technologies, what we are shooting for are meeting the emission rate portions of the CPS agreement and as such all we need are the construction permits from the Illinois EPA and thus far they've been cooperative and provided us with the permits for testing without any difficulty. In fact, they were expedited so we really don't need anything other than construction permits for these technologies to comply with the rates.
Operator
Your next question comes from Hugh Wynne – Sanford Bernstein.
Hugh Wynne – Sanford Bernstein
Your comments on the opacity problem at Homer City were just a little opaque to me. I was wondering if you could clear them up.
Ronald Litzinger
As we began to get into more of a load following mode at Homer City with the units ramping up and down, we started having opacity exceedences. The regulation anticipates these type of exceedences during transient conditions and for 2% of your operating hours; you're allowed to exceed those levels.
We started to get above that level. We have since then been optimizing our ramp rates, in essence slowing them down and retuning our combustion parameters in the boiler.
We've got them back underneath that 2% allowable level. On April 1, that allowable level got reduced to .5%.
The team has further tuned the boilers and we're now underneath that level. We have a small de-rating left, but we'd expect the team to have that sorted out and get rid of that small de-rating here shortly.
Hugh Wynne – Sanford Bernstein
I noticed on your liquidity profile you've got $2.3 million of cash and short term investment in Mission Group which is looming very large relative to the outstanding debt of the unit. Is that transient as a result of the IRS settlement?
Is this something that reflects an accumulation of cash for future CapEx or debt retirement? What is the purpose of the large balance?
James Scilacci
Just to clarify, the $2.3 billion that shows in our investor deck is the accumulated consolidated cash at Edison Mission Group and you have to break it down in its component pieces. The principal entity that holds the cash is Edison Mission Energy and Edison Mission Energy has as of March 31 about $2 billion of the $2.3 billion.
The majority of the remaining cash resides at Edison Capital and it has a lot of cash from terminating the two leases, and there's very, very little cash that resides at Homer City. In fact, we sweep out most of the cash from Homer City so there's negligible amounts of cash there.
Hugh Wynne – Sanford Bernstein
And the intent of the large cash balance at Edison Mission Energy?
Theodore Craver
There's a couple of drivers there. We drew down on our credit lines at both EME and Midwest Gen in the fourth quarter of 2008 and we have left that cash sitting on the balance sheet, and obviously we have a borrowing on the opposite side through the draw on the lines.
We've kept it there and we haven't decided whether to take it down. You may have noticed in the first quarter we did pay down some borrowings at Edison International and Southern California Edison as the bank situation started to stabilize.
Operator
Your next question comes from Jonathan Arnold – Merrill Lynch.
Jonathan Arnold – Merrill Lynch
Could I ask for a little extra color around the timing for realizing the net cash benefit of the IRS settlement and how is that fairly clear to you at this point or is it potentially drawn out over a longer period? What could change that?
Theodore Craver
I think what's important to understand off the top that when we terminated the leases at Edison Capital, the cash in now in the house. And so it's sitting there pending how we're going to move the dollars up from Edison Capital and ultimately out to the IRS for payments and then to California Edison.
We're going through that process right now, sorting through many, many of the details and as we get into the second quarter and we actually report on the settlement, we'll have more information.
Jonathan Arnold – Merrill Lynch
So just to be sure, you're at a maximum cash point on this already and now you'll do the flow backs later beyond the second quarter.
Theodore Craver
It will probably occur in the second quarter but we just got the cash and now we're working through all the details. It came in in the month of April and we'll report on all this in August as we get through the second quarter.
Jonathan Arnold – Merrill Lynch
Could I ask for just a little more color on the timing of wind financing and then also the pipeline? When you say you have these turbines in the pipeline, are there any dates coming up where you're committed to take them and you need to have projects in hand.
Can you remind us how that works?
Theodore Craver
On the project financing we're currently working through that with a group of banks and I'll just say right now it's progressing. In terms of the dates and commitments around out turbines, we're in active discussions with all three of our major turbine providers and that's active, and we've got some milestones that are coming up.
Ronald Litzinger
We're in discussions with three of our suppliers. We are deferring deliveries of the turbines and deferring the payments that correspond with those as part of our cash preservation strategy.
And then we are continuing to develop projects such that they will ready when the new turbine delivery dates come to fruition.
Jonathan Arnold – Merrill Lynch
Should we think of this as you're paying some kind of penalty in order to defer or adjusting contract terms or something like that?
Ronald Litzinger
No, it's a very simple form ender financing, pushing the payments down the road and then we are negotiating other issues with the turbine suppliers as we go through this exercise.
Jonathan Arnold – Merrill Lynch
So you have a one time cost for doing this?
Ronald Litzinger
Not at this point in time. There are termination provisions in the contract but we're in a deferral mode not a cancellation mode at the moment.
Jonathan Arnold – Merrill Lynch
Do you have to then, are we looking for some negotiations to be completed and you'll announce at some point you've secured deferral or is it safe to assume you can defer for some period of time and how long is that?
Ronald Litzinger
We've been deferring all turbine deliveries and payments in the first quarter with the exception of one tranche and one supplier, have already been deferred. So as we get formal signed agreements with suppliers we'll disclose them at that time.
Operator
Your next question comes from Leslie Rich – Columbia Management.
Leslie Rich – Columbia Management
I wondered if you could take a look at your projected annual generation volumes for Homer City and Midwest Gen. Obviously during the first quarter volumes were down and I wondered if you had any projection for your total volumes produced during the year given the opacity issues that you were discussing as well as demand or is it really just a factor of whatever the demand is you'll generate it.
I know what you're sort of normalized run rate for generation volumes is on an annual basis and I was wondering if you've adjusted that.
Ronald Litzinger
At Homer City our planned outage moves are largely timing issues. We were just pushing our scheduled overhaul into a period of known low pricing so we expect volumes to be roughly the same given the fact that we think we've just about got this opacity problem corrected.
Volumes will probably be down slightly at Midwest Generation. We did see lower dispatch because of the lower exports.
That has largely gone away in the second quarter and things are starting to look a little more typical.
Theodore Craver
We don't typically provide projections of generation, but historically Homer City generates somewhere between 13.5 and 14 terawatt hours a year.
Operator
Your next question comes from Lasan Johong – RBC Capital Markets.
Lasan Johong – RBC Capital Markets
The bond index seems to kind of shifting down and Semper is looking to suspend the tie to the ROE number, are you looking at similar moves? Are you concerned about your ROE position right now?
Can you give me a little color on that?
James Scilacci
I'll give you some color, them I'll kick it over to Al Fohrer. It's my understanding that Semper has, and SoCal gas has different mechanism and we track Moody's AA bond index, and that's the one you should be looking to in terms of how it might adjust going forward, and it's on an annual basis.
So let me stop there and look over to Al Fohrer to see if there's anything more he'd like to add.
Alan Fohrer
The only thing I'd add is this takes a look at interest rates over a period of time and that period extends through the end of September, so it's a little premature at this point to speculate on exactly where it's going to end up.
Lasan Johong – RBC Capital Markets
On the $2.3 billion cash at CSG, how much of that is due to collateral from third parties?
James Scilacci
About $300 million.
Lasan Johong – RBC Capital Markets
Do you think that your Midwest Generation fleet was impacted by coal to gas switching potentially or more gas gen running and people buying from gas fired gen versus coal fired gen?
Theodore Craver
I think there are lower loads overall in Midwest Gen and we have speculated that it could have been that but we don't have all the information and so we're just going to keep it there and say there may be something like that going on but we don't have the information to be able to confirm that.
Ronald Litzinger
Gas prices are certainly indicative of coal and gas switching. We don't have any hard evidence that that's occurring.
It certainly can. Our volumes were down primarily in the off-peak periods where with the limited amount of exports leaving, nuclear plants were clearing on the off-peak hours most of the time.
Operator
Your next question comes from Ryan Mooney – Dusquense Capital
Ryan Mooney – Dusquense Capital
I had a couple on the Edison Capital global settlement and the $600 million cash that received by SCE, just to clarify did you say that you have received that cash and does that serve to offset the customer bill or are you able to use that for a financing source of capital.
Theodore Craver
Just to clarify, I said that if we terminated the leases at Edison Capital. Part of the deal with the lessees, we give them back the asset.
We got collateral supporting the lease payments and that collateral was in the form of Treasury strips which has now been converted into cash. So that resides at the Edison Capital company.
During the second quarter when we report on this, we will provide more information on how all the funds are going to flow.
Ryan Mooney – Dusquense Capital
On the PRB position in 2010, it seems you have about a six to seven million ton open position and then steps down in 2011 from there, how are you thinking about re-contracting that in today's market and when should we expect that might happen?
Ronald Litzinger
In the out year, in the future years, we try to keep our power and our coal positions roughly in sync and so we will be watching, we will be sticking to that philosophy. As we get later in the year for logistical reasons, we do have to fill out our coal position and we are constantly monitoring trends in PRB pricing.
The 2010 coal has come down a little and so it's trending in the right direction and we're monitoring it. But again, we generally lock that in with power hedges.
Operator
Your next question comes from Clark Orsky – State Street Global
Clark Orsky – State Street Global
I had a question regarding the CapEx at EME. In the table, in the Q the $803 million of CapEx for the rest of the year, does that include deferrals of turbines?
Theodore Craver
That's the full turbine commitment amount. With some suppliers at this point in time with the negotiations, we've just pushed later in the year and as we finalize the arrangements we'll be revising the table.
Clark Orsky – State Street Global
And the projects financing that you discussed, is that expected to encompass all of the financing needs for wind or just the near term?
James Scilacci
The project financing is just a statement of our current portfolio of projects and so it's a segment. So it doesn't cover the whole portfolio.
As it stands now, the wind portfolio is completely equity financed and we designated a small group of turbines to finance at this point in time because they're the easiest to finance and we're in advanced discussion with the banks on that.
Clark Orsky – State Street Global
Any time table you might be able to say more about that?
James Scilacci
I think we can just say we'll report more in the second quarter, but we are in advanced discussion.
Operator
Your next question comes from Kevin Fallon– Blenheim Capital Management
Kevin Fallon – Blenheim Capital Management
I wanted to clarify an earlier question. The funds that you receive at the SCE level from the global settlement, is that shareholder money or rate payer money, or is that inconclusive right now?
Theodore Craver
The way this works, just step back a little bit. The dollars here have to do with over 100 issues that have arisen as far back as 1986 and as the dollars flow into SCE, the big thing here; it's going to provide needed funds to help finance the utilities capital structure and overall capital plans.
This will be beneficial to rate payers going forward because at SCE it's going to increase deferred taxes which is an offset to rate base and ultimately revenue.
Kevin Fallon– Blenheim Capital Management
Is that your decision to make or do you need that approved by the CPC?
Theodore Craver
The way that this is going to work, and let me just follow my last statement here because I was going to get to the core of what you're asking. The settlement cash at SCE is really in two major pieces.
It's a refund of income taxes and an interest on the refund that SCE paid, not rate payers associated with our issues and these payments obviously were paid to the IRS. And the second piece, the refunds and associated interest from long ago periods that are closed for rate making purposes and so I think we're getting, hopefully you understand here that these are our dollars.
Kevin Fallon– Blenheim Capital Management
So one part is outright shareholder money was spent to satisfy IRS claims and the other is for lack of better term, like the statute of limitations has ended on the other part?
Theodore Craver
I think that we just want to say that these are rate making periods that are very old, long ago and they're fully closed.
Operator
Your next question comes from Ben Shuman – Pacific Crest
Ben Shuman – Pacific Crest
Can you give us a quick update on the Smart Connect program at SCE in terms of how many meters you expect to install this year and maybe next year?
Alan Fohrer
I don't have the exact number on the meters. We're looking at still a full scale deployment by the end of 2012.
We have delayed or deferred some of the meters that we were going to do in 2009 more into the 2010 period, but I don't have the exact number we're doing this year. We're still focused on end of program at the original date of 2012.
Ben Shuman – Pacific Crest
Is it still undetermined when the full scale roll out will be in then?
Alan Fohrer
The full scale deployment will begin later. [break in audio]
Michael Goldenberg- [Luminess] Management
I wanted to follow up on the question that relates to cash at SCE. I think you said something about deferred taxes.
Basically are we to understand that this cash is positive in that it brings in money to SCE but it reduced rate base through deferred taxes so basically it's almost like a CapEx reduction in a way?
Theodore Craver
The way it works, ultimately there's a piece of it that reduces rate base through increase in deferred taxes.
Michael Goldenberg- [Luminess] Management
So all the cash benefits that you're talking about, the $300 million cash benefit combined of SCE capital is basically coming in this year? It's already in our coffers at this point.
Theodore Craver
Yes.
Michael Goldenberg- [Luminess] Management
And the six leases are all the leases that were outstanding at Edison Capital so at this point Edison Capital doesn't really have any leases at all.
Theodore Craver
Just to clarify, these are cross border leases. There are a few legacy leases, domestic leases that still exist that have some capital, but it's small in relationship to the cross border leases.
Michael Goldenberg- [Luminess] Management
So the cross border ones were like Dutch entities were involved oftentimes. Is that the kind you're talking about?
Theodore Craver
They're foreign infrastructure investments so those are all now the ones that are terminated.
Operator
Your next question comes from [Raymond Lund – Goldman Sachs]
[Raymond Lund – Goldman Sachs]
Question on the wind turbine deferment, what kind of sense can you give us? It sounds like its being deferred.
Would that change the '09 spending and push it out to '10 and is the deferment just focused on the '09 deliveries? Are you working also on your '10 deliveries?
Ronald Litzinger
We are focused on the '09 deliveries. Only one supplier actually has 2010 deliveries.
[Raymond Lund – Goldman Sachs]
Are there any parameters around how much deferment that you can push out from '09 to '10 or do we just have to wait a bit on that?
Ronald Litzinger
We have to complete and get the final agreement with those suppliers.
Operator
Your next question comes from Paul Patterson – Glenrock Associates.
Paul Patterson – Glenrock Associates
On the hedge, it doesn't seem like there's been much of a change in the hedge in terms of power output. There does seem to be a slight decrease in hedge in terms of coal for 2010 and 2011.
Have you already gone over this?
Theodore Craver
We indirectly talked about it and I have it in my prepared remarks, but I can just briefly say we didn't change our hedge position during the first quarter so power, we didn't sell any power forward and we didn't buy any additional coal supplies. And I think the basic line that you've been hearing from us the last couple of quarters has been we believe that coal prices would come down and we would look to hedge at the appropriate timeframe.
As far as selling power forward, we've been reluctant to want to extend our hedges out too far or at all because these current low prices and we're also mindful of the liquidity impact to the extent that you lock in now and prices go up later, it would have a significant requirement for cash. So we're watching that market carefully and we're going through the process now of reviewing our hedge position, but we'll make that decision later and we generally like to keep out hedge position equal.
If we're going to sell power forward, we like to have our coal locked up, transportation so it's a cleaner hedge than just getting what I would typically refer to as a dirty hedge by having certain elements hedged but not others.
Paul Patterson – Glenrock Associates
It looked like there was a slight decrease in coal under contract but it doesn't look all that great but for 2010, 2011 I was just wondering why that might be but also it looked like you were a winner I believe. Maybe I've missed it, but I thought that you were a winner in the ComEd RFP that was done recently after the date that the slide is, but how should we think about that with respect to what you just said about power prices being low?
Ronald Litzinger
On the recent RFP we won a very small tranche of that, mindful as Jim pointed out of our liquidity concerns.
Operator
Your next question comes from [Jesse Lauden – Ben Lucas]
[Jesse Lauden – Ben Lucas]
In terms of the wind investments, has the company devaluating the [Milis] program and made a decision in terms of what type of tax credits make the most sense at this point?
James Scilacci
I think we're still looking at the various options. Clearly we have some appeal to the cash grant approach given our liquidity position, but we haven't made a decision yet in terms of what we will do.
Operator
Your next question comes from Ivana Erglevick – [firm not specified]
Ivana Erglevick – [firm not specified]
Just a quick question on wind earnings. Do you have $0.04 contribution in the quarter and would it be reasonable to assume that you'll have a similar contribution in the following quarters?
Theodore Craver
There will be additional contributions. If you go back a couple of quarters you can see we've added a number of projects to commercial operation, so we're in that phase in our earnings on the wind side that should be increasing.
And similarly you should see an increase in the level of production tax credits the projects generate. And we've got two more projects that are late in construction phase and should go commercial soon, and we've got another project, a large project that we have re-commenced construction on.
That's our Big Sky project. So you would naturally see a lift in the level of earnings generated from the wind projects.
Operator
Your next question comes from Daniel Eggers – Credit Suisse.
Daniel Eggers – Credit Suisse
I'm just trying to digest something around the $600 million adjustment to production rate base. Because the GRC is in place for the next three years, does that mean that there's no way to adjust revenue requirements or look at ROE's in that transition period?
Theodore Craver
Just to clarify, the $600 million is cash not an adjustment in the rate base so I just wanted to clarify that off the start. The normal process we'll go through is that we will update information through the General Rate case that cause us to incorporate the changes in deferred taxes and we'll go through the normal process with information to do that.
Daniel Eggers – Credit Suisse
Which would mean the next rate case?
Theodore Craver
That's the current schedule.
Operator
Your next question comes from Michael Lapides – Goldman Sachs.
Michael Lapides – Goldman Sachs
Can you give an update on transmission development in Southern California especially what you're seeing in terms of being able to site and permit some of the lines you're working to connect to renewable and also provide an update on Palo Verde Devers?
Alan Fohrer
The two lines you're talking about, the first one the transmission project. That is moving forward.
The first phases, one through three are under construction. The remaining phases are going through the licensing process with a decision expected later this year.
We're seeing the normal pushing and shoving around location of the lines, but this is something I think we would be seeing and expected. We're trying to work with all the parties to reach resolution but ultimately a decision has got to be made on the lines going forward and I think we're in the process to do that.
Devers Palo Verde remains a little muddier. We are working with the PUC and all the parties on the status of the line.
The PUC is considering whether to authorize the first portion for California and that's before them right now and we're working with stakeholders to see if there's a resolution in Arizona or whether we pursue some other path. That remains to be seen and that needs to be worked out with the PUC and all the parties.
So that one's a little more up in the air.
Operator
At this time I'll turn it back to Mr. Cunningham for any additional or closing remarks.
Steve Cunningham
Thanks everyone. If you have any follow up questions please don't hesitate to give us a call.
Thank you.